The Real Value of Financial Advice Isn’t What Most People Think

If you asked someone what they pay a Financial Planner for, there’s a good chance the answer would be something along the lines of, “To look after my money.” They might mean their Pensions, Investments, savings, Trust funds or simply their overall wealth, but the assumption is usually the same: the Financial Planner’s job is primarily to look after the money.

It’s a fair assumption. After all, Investment performance is often the part people see most clearly. Markets go up, markets go down and portfolios are reviewed regularly.

While managing Pensions and Investments remains an important part of Financial Planning, new research from Russell Investments suggests that much of the value clients receive comes from the wider Advice and Planning that surrounds them.

Their latest study estimated that comprehensive Financial Advice could add the equivalent of around 4.9% a year in value. Before anyone gets too excited, it’s important to point out that this isn’t an Investment return or a guarantee. In fact, Russell are very clear that it isn’t intended to represent additional market performance at all.

Instead, it’s an illustration of the value that can come from making better Financial decisions over time.

Perhaps the most surprising finding was where that value comes from.

According to the research, the single biggest contributor wasn’t Investment selection or trying to outperform the market. It was behavioural coaching, in other words, helping people avoid emotional decisions during periods of uncertainty.

That probably won’t surprise many of our clients.

Some of the most important conversations we have aren’t about choosing a different fund or reacting to the latest headline. They’re about helping people remain focused on the bigger picture when markets become volatile, reminding them why their Financial Plan was created in the first place and giving them the confidence to stay the course when emotions are running high.

The research also highlighted the value of Tax Planning and personalised Financial Planning, both of which were estimated to contribute far more than Investment selection alone.

Again, that resonates with how we’ve always viewed Financial Planning.

Much of the work we do has very little to do with trying to predict the next winning Investment. Instead, it involves helping clients navigate Retirement, supporting families through bereavement, planning for later life, protecting wealth for future generations, making the most of available Tax Allowances and adapting plans as life inevitably changes.

It’s also why education has always been such an important part of our approach. Whether it’s our monthly Wealth Management Update, our annual Tax Briefing, Pension and Inheritance Tax workshops, or the regular updates we share throughout the year, our aim is to help clients understand not just what’s changing, but what it means for them. We believe that better-informed clients are better equipped to make smarter Financial decisions.

In many ways, that’s the part of Financial Planning people don’t always see.

The meetings between Advisers. The discussions around Tax. The Investment Committee reviews. The Estate Planning conversations. The regular reviews that ensure your plan continues to reflect your life as it evolves.

Perhaps that’s why the real value of Financial Advice can sometimes be difficult to measure.

It isn’t just found in a portfolio valuation. It’s found in the expensive mistakes avoided, the opportunities identified, the confidence to make important decisions and the reassurance of knowing somebody is helping you look around the next corner.

Because whilst Pensions and Investments will always be an important part of Financial Planning, they’re rarely the whole story.

And perhaps that’s the biggest message from this research.

The greatest value of Financial Advice doesn’t necessarily come from trying to predict the future. It comes from ‘Helping People Make Smarter Financial decisions’, whatever the future happens to bring.

Source: Russell Investments. The figures quoted are research-based estimates intended to illustrate the potential value of comprehensive Financial Advice and do not represent guaranteed Investment returns or future performance.